By Kerstin Buechner, Director QP Savills

Market Report 2021

It might not come as a surprise but over the past 2 centuries nearly 90% of ultra-high net worth individuals , accumulated and maintain, their wealth by investing in real estate. Granted some high-net-worth individuals are more invested in real estate than others. But it turns out that real estate remains the most popular vehicle for wealth creation and preservation.

Real estate is the world’s most significant store of wealth - more valuable than all global equities and debt securities combined, and almost 4 times global GDP levels. The value of all gold ever mined pales by comparison at $12.1 trillion, at just 4% the value of global property. The value of the world’s real estate has reached $326.5 trillion. Growth was driven by the residential sector which is by far the largest real estate sector, accounting for 79% of all global real estate values. It saw its value increase by 8% over the year, to some $258.5 trillion. The strength of residential property markets shows that home isn’t just where the heart is.

At a regional level, significant residential wealth is concentrated in Europe and North America accounting for 43% of total global residential value, despite being home to just 17% of the global population.

It is probably safe to say that the past 2 years have changed us all in some way. The local property market is certainly not immune and has experienced shifts in what people are looking for and importantly how much they are willing to invest.

Surprisingly, these shifts were not all negative. The lower and middle markets initially suffered during the pandemic. The level of demand decreased as people’s financial situation made investing in property more difficult and even if they still could and would invest, the travel restrictions made viewing properties only possible virtually. And as the levels of transactions reduced so did prices and what vendors might accept. Post pandemic, this market has recovered quickly due to the sudden unprecedented demand and the resulting lack of supply.

The Prime market has proven to be a little more resilient to market influences and we can report a clear and steady increase in enquiries, transactions, and property values throughout the pandemic and there is no sign of this slowing.

 

Total Sold

Average Sale

Units Sold

 

In 2020 and 2021, real estate has provided investors with an income opportunity as they search for returns in a low interest rate environment. Government stimuli in the wake of the pandemic has meant that there is more capital in the system and real estate is viewed as a safe store for it.

Here in the Algarve, we have seen demand for real estate continue to grow – particularly in the Prime market in which we have specialised. New price heights have been recorded with values of over Euro 10m now being achieved for vendors with some frequency. In 2021 we sold a truly magnificent single private home in Quinta do Lago for Euros 18.5m. A record high for us at QP and indeed the country. Testament to the exceptional quality of properties which are now being created in the central Algarve and calibre of clients we have the privilege of working with.

 

Properties sold over 10m over last couple of years

 Between €5m and €10m  Over €10m

 

In 2021, demand for property was still very much British-buyer led. Over 60% of our buyers come from the UK, followed by Portuguese and Irish nationals (both 15%) and then the French and many other nationalities in small numbers. The area is attracting a slightly more international group of buyers. AFPOP (the Association of Foreign Property Owners in Portugal) reports that in the past 12 months 34% of their new members come from the UK and surprisingly, 30% are from the USA.

In years gone by, the return on investment was key to many of our buyers. Opportunities to buy plots and projects for lucrative resale was what it was all about. Today buyers want beautiful homes they can move into and we attribute this to the new world we live in. The post pandemic work-place provides many of us with the opportunity to work from home and this is contributing to increased interest in bigger and better homes, somewhere buyers can spend more time comfortably. Many are moving here with families and the local schools are not only growing, but improving their facilities to cater to the most discerning of them. 65% of our buyers are hoping to spend more time in the country (min 4 to 6 months), 15% are buying for the occasional holiday and 20% of our buyers are buying to make Portugal their main home. So, a property, even one far away, could be less of a holiday home and more of a second home.

The prime market consists of the most desirable and aspirational property by reference to location, standards of accommodation, aesthetics and value. Typically, it comprises properties in the top five per cent of the market by house price.

 

It is also interesting to see that few of our vendors are selling and taking their capital back to the UK or France etc but almost all are reinvesting in one way or another in the local property market. This, added to the fact that many new big buyers are coming into the Algarve explains the phenomenal increase in demand for property, the lack of stock and increasing property values.

Many of our buyers are very familiar with the Algarve and have been travelling here for years. By the time they invest in a property, they have familiarised themselves with all the advantages the area offers. A very important driving factor contributing to demand in the Algarve is personal security. The Algarve was recently nominated amongst the top 5 safest places to live in the world and the low crime levels are an important factor to purchasers. Investment security is the second most important driver and buyers perceive Portugal as a secure place to invest in a first or second home – houses are well constructed; infrastructure is good and the strength of the property market gives extra confidence to all buyers. And for those wanting to work from here, the all-important high speed fibre optic internet is the icing on the cake.

We are also observing that our buyers are better informed in terms of some of the pitfalls they need to look out for. Company owned property remains popular but the asset value within the corporate structure is subject to much analysis as are all legalities and tax implications. This is probably a natural side effect of the calibre of the buyers we are seeing. The extraordinary wealth of many of our clients often brings with it financial advisers and other professional consultants.

 

Company vs Private purchases

 Company purchase  Private purchase

 

It is interesting to observe the recent increase again in the popularity in purchasing via corporate structures as property values in the Prime market reach entirely new levels. The average value of a private property transaction in 2021 was just over Euro 2m and of corporate owned property it was Euro 4.7m.

Most property searches at every level begin online. Our website had over 1.7m hits in 2021 and for Q1 of 2022, the hits are up 30% on the same period of 2021. Over 38% of our new buyers found us online and I am delighted to see that 35% of our buyers are repeat customers or client referrals.

Virtual viewings are thankfully a thing of the past. Serious buyers may enjoy a Facetime tour of a property or a digital virtual walkthrough before flying out but an in-person viewing of the property is certainly the norm at QP before buyers commit to a purchase.

The NHR and Golden Visa schemes continue to be a popular draw for buyers throughout the country. NHR buyers make up an estimated 20% and GV buyers account for 15%. We would suggest that this is much lower than the national average. Most of our buyers in the Prime market seem to have their ducks in a row on these fronts.

Higher prices are offering vendors attractive returns on their initial investment and they are taking the opportunity to realise them.

For those buyers who are unfamiliar with the Algarve, there is undoubtedly, initially some surprise regarding property prices, however, this inevitably recedes as those same buyers take stock of the prolific market activity and often missed opportunities whilst they watch from the side-lines before they embark on their own purchase.

A Forecast

So what’s next for the Algarve property market?

We are seeing a real lack of stock across the coast and at all price levels. Demand continues to increase and so our near to medium term forecast for the market is that values will continue to increase. New local planning laws (PDM) will be confirmed this year and we expect they will make it even harder to build new or redevelop old properties.

We welcome the enormous amount of investment from large funds wishing to invest and develop in the area. We successfully sold the 90% of Marriott’s W Residences Algarve, developed by Nozul before the resort completed construction. And there are many other exciting projects about to be launched. Vilamoura World, Conrad Algarve, Vale do Lobo, The Keys just to name a few, have all recently been bought up and are in the process of being redeveloped. The tendency is towards 5 star, all bells and whistles and the market will absorb these with glee!

The benefits of NHR and GV, an excellent and affordable health care system, security in terms of personal and investment, the climate, the lifestyle and ease of access make this place could hard to beat. Portugal is well and truly on the Global map. It’s a solid investment and trendy.

Our advice:

Developers should not delay in bringing new stock onto the market. Buyers, buy now or pay more on your next visit!

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